Gerry Industries has some 8% coupon bonds on the market that are selling at $989, pay interest semi-annually, and mature in ﬁfteen years. The company would like to issue $1 million in new
ﬁfteen-year bonds. What coupon rate should be applied to the new bonds if Gerry Industries wants
To sell them at par (Use values in the dollar)?

Question

Quizplus · Accepted Answer

To sell the new bonds at par, the coupon rate must equal the yield to maturity (YTM) of the existing bonds. The existing bonds have a YTM slightly higher than 8% since they are selling below par ($989). Calculating the YTM for the existing bonds gives approximately 8.13%, which should be the coupon rate for the new bonds to sell at par.

Gerry Industries Has Some 8% Coupon Bonds on the Market